Commodities, the lifeblood of the British Columbia economy, are at the beginning of a long, downward trend that is bound to affect both government and households, says a Simon Fraser University economist.

“We have seen the best days in terms of dramatic increases in commodity prices,” David Jacks, an economic historian at the university, said in an interview.

He said commodities, particularly minerals and energy, are characterized by long-term trends related to global industrialization and urbanization. That growth runs up against capacity constraints, particularly in minerals and energy, leading to rising prices. New capacity to meet the new demand then leads to prices easing.

The current cycle, which has been going on since 1998, is being driven by Asian, specifically Chinese, economic growth and urbanization. Jacks has written a paper, From Boom to Bust, on the super-cycle, which he prepared for a recent conference in Australia on commodity price volatility. Jacks said his is not the only voice warning that commodities are beginning to trend downward in price — investment bankers Goldman Sachs and Citybank have done the same.

However, commodities analyst Patricia Mohr, who writes a monthly research report for Scotiabank, said she thinks it’s a little early to be talking about the end of the super-cycle. Prices are softening, and they may remain soft for several years, but new capacity for metals like copper is limited beyond 2017, and prices are expected to pick up after that.

Further, economies like China have not matured yet, she said, citing the fact that only 70 people per thousand own cars in China compared to 793 per thousand in the U.S. and 580 per thousand in Japan. Automobiles, she said, consume huge amounts of metal and energy. For the short-term, rising prices in March for commodities such as natural gas, heavy oil, and oriented strand board have pushed up Scotiabank’s commodity price index for that month.

“It depends very much on what you are looking at,” she said of commodity prices.

Jacks said he does not expect a dramatic price collapse in minerals and energy, but that prices will ease off their highs.

“This is not an entirely bleak story. I don’t think it is going to be a collapse in the commodities complex. But a little caution is warranted.”

Jacks said that during a commodity cycle — and he has tracked prices for 30 different commodities from 1850 to 2012 — the common refrain from those involved in the resources sector is that this time, it’s different. It’s not part of a cycle.

Fifteen of those 30 commodities are in the midst of a super-cycle, which began in 1998. Historical evidence, he said, suggests they are at their peak and “nearing the beginning of the end.”

Before 1998, Jacks said there were low levels of investment in mining and energy. Investment was low and there was no capacity building until China started to industrialize.

“What we are seeing now is that capacity in these sectors is catching up with that (Chinese) demand shock,” Jacks said.

Although commodity prices are set by global economic factors, Jacks said he believes people in Metro Vancouver have a low awareness of the impact such price trends can have on their lives. He singled out the impact of mining in particular.

“Vancouver is a prosperous city but it seems to me people have a hard time understanding what are the sources of this prosperity. We don’t have a Microsoft or a Starbucks or an Amazon like our sister-city in Seattle has,” he said.

Of the 1,673 mining companies listed on the Toronto stock exchange and TSX Venture exchange — which raise 70 per cent of the equity capital raised globally for mining — 959 are headquartered in Vancouver.

“If you think there is going to be anything that is going to lead to a moderation of commodity prices, you would think that is going to feed into the activities of these (mining and exploration) firms that are headquartered in Vancouver,” he said.

“That’s obviously going to have some implications on the revenue stream of the provincial government, whether it’s through corporate income tax or personal income tax. But it’s also going to have some ancillary effects on industries in terms of service, in terms of real estate, all sorts of things.”

Andrew Watson, vice-president at junior Vancouver mining company Sego Resources, said in an interview that the junior sector has been experiencing a “famine of capital” for over a year that has resulted in companies disappearing. A number of factors are driving the unwillingness of investors to put capital into mining, he said, including the commodity cycle, global economic uncertainty, regulation and the fact that the sector in general is trending downward on the TSX Venture exchange.

“If the junior mining sector takes this hit, and a good 200 to 300 of these Vancouver juniors disappear for whatever reason, my feeling is that it stops exploration. If you don’t have exploration, you don’t have those new deposits coming online to feed the majors like Teck, Rio and New Gold.

Secondly, it starts eating into the personnel and infrastructure — the suppliers, accountants and lawyers who specialize in mining.

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Lower mineral, energy prices bound to hurt B.C., economist says

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